JEKYL & HYDE SIGNAL

87.37 DIA @ 1:07PM
October 22, 2008 - Wednesday
Here it is in a nutshell:

VIX spiked from 51 low yesterday to 76 today as the put volume dominated in the first 90 minutes of trading.

The DIA dropped from 90-92 range yesterday down to 86.21 low today and bounced to 88.25 high since that dramatic decline.

The YEN's rally is what set this up, in my opinion and was the reason I was nervous about taking long positions yesterday, but I took them anyway, but I still respected the message that the Yen was sending us = monetary strains in the system, deleveraging, etc.

Now here we are at 87.18...

I have very specific instructions:

If the DIA can break under the low today, then you want to go with that breakdown and short the market. If the DIA can break above the high today, then you want to go with that breakout.

WHY?

Because that heavy level of put-buying is from INSTITUTIONS, then that put buying is FRONT-RUNNING their own selling later today, perhaps from mutual fund liquidation orders that they already have or expect to have or are guessing that they will have. That would clearly be bearish and a reason to expect a big decline.

HOWEVER, if the put-buying was from individuals or speculators, then they might very well be wrong and at some point, I've said three hours before with the "Three Hour Rule", the market will see that there is nothing to fear and then run the market back up to squeeze out those new short positions.

SO.

With that "BACKDROP" in mind - I'll leave you to place a buy stop over the high, exit with 1 pt stop or at end of day AND a sell stop under the low, exit with 1 pt stop or at the end of the day.

1:18PM
86.88 bid now.